Strongest Adelaide home price growth in 29 years

Home prices; Purchasing manager surveys

The CoreLogic Home Value Index rose by 1.3 per cent in October, the slowest growth in 10 months. National home prices are up 22.2 per cent over the year – the strongest annual growth rate in 32 years.

The AiGroup purchasing managers index (PMI) for manufacturing rose from a 12-month low of 50.4 in October to 54.8 in November. And the Australian IHS Markit Manufacturing PMI rose from 58.2 in October to 59.2 in November – the third fastest rate on record. Readings over 50 denote an expansion in activity.

What does it all mean?

• Aussie home prices rose further in November, though the pace of gains was the slowest in ten months. The pick-up in listings, Covid-19 restrictions, affordability constraints, rising fixed mortgages and new regulatory measures to tighten serviceability requirements for new mortgages all combined to slow price momentum. That said, national home prices have lifted for 14 consecutive months with the annual growth rate in November the strongest pace in 32 years.

• Home prices were higher in seven capital cities in November, led by gains in smaller cities with Brisbane the best performer due to better affordability, fewer lockdowns and solid interstate migration. Brisbane home prices were up 2.9 per cent in the month – the biggest gain in 18 years. At an SA4 level, Greater Brisbane regions dominated monthly regional home price gains with Brisbane – South (up 3.6 per cent) and Brisbane – East (up 3.3 per cent) the strongest performers nationally. Ipswich (up 3.2 per cent) and Moreton Bay – South (up 3.2 per cent) also performed well.

• Last weekend Adelaide recorded its busiest auction week (299 auctions) since CoreLogic records commenced in 2008, implying strong housing activity in the South Australian housing market. Adelaide’s 2.5 per cent lift in home prices in November was the strongest pace in almost 29 years (since February 1993) with the South, North, Central and Hills SA4 regions all up by 2.5 per cent. And prices in Adelaide – West lifted a solid 2.3 per cent.

• The divergence across capital cities saw larger capital cities underperform in November with Sydney (up 0.9 per cent) home prices growing at the slowest pace in ten months. And Melbourne home prices lagged, lifting just 0.6 per cent – also the slowest pace in ten months. Affordability pressures and negative migration due to lockdowns have begun weighing on home price growth in both cities. In fact, prices in Sydney – City and Inner South actually fell by 0.2 per cent in November with prices in Melbourne’s Inner East flat.

• Home prices in regional areas continued to perform well in November, out-pacing capital cities, supported by a home buyer desire for either a ‘sea-change’ or ‘tree-change’ and more flexible working arrangements. In fact, home prices rose in 82 out of 88 SA4 regions in November, with median home prices hitting record highs in 67 regions. Outside of Greater Brisbane, regional home price growth was strongest in Launceston and North-East Tasmania (up 3.2 per cent); South Australia – South East (up 3 per cent); Hume, Victoria (up 2.9 per cent); Southern Highlands and Shoalhaven, NSW (up 2.9 per cent); and Capital Region, NSW (up 2.9 per cent).

• Commonwealth Bank (CBA) Group economists recently updated their outlook for house prices. With fixed rate mortgages now rising, we expect dwelling price growth to continue to moderate, lifting by 7 per cent in 2022 before an orderly 10 per cent “correction” in 2023. Expected higher interest rates will also likely impact on new building approvals and renovation activity, while additional macro-prudential policy tightening in 2022 is possible, particularly if investor activity gathers pace. Dwelling supply could also lift due to the HomeBuilder stimulus-induced pipeline of home building. But the eventual resumption of inbound skilled migration could lift demand for housing.

What do you need to know?

Home prices – November

• The CoreLogic Home Value Index of national home prices rose by 1.3 per cent in November, the slowest pace in 10 months. Home prices are up 22.2 per cent higher over the year – the strongest annual growth rate in 32 years.

• Across all capital cities, home prices lifted by 1.1 per cent – also the slowest pace in 10 months. But capital city home prices are up 21.3 per cent over the year to November – also the strongest annual pace in 32 years. House prices climbed 1.2 per cent and apartment prices rose by 0.7 per cent. House prices were up 24.3 per cent on a year ago – the fastest annual rate in 32½ years. And apartment prices climbed 12.6 per cent – the strongest annual pace in 11 years.

• Home prices were higher in seven capital cities in November: Sydney (+0.9 per cent); Melbourne (+0.6 per cent); Brisbane (+2.9 per cent); Adelaide (+2.5 per cent); Perth (+0.2 per cent); Hobart (+1.1 per cent); Darwin (-0.4 per cent); and Canberra (+1.1 per cent).

• Home prices were higher than a year ago in all eight capital cities in November: Sydney (+25.8 per cent); Melbourne (+16.3 per cent); Brisbane (+25.1 per cent); Adelaide (+21.4 per cent); Perth (+14.5 per cent); Hobart (+27.7 per cent); Darwin (+16.7 per cent); and Canberra (+24.5 per cent).

• Regional home prices advanced 2.2 per cent to be up 25.2 per cent on the year – the strongest annual growth rate in 17½ years. House prices also lifted 2.2 per cent to be up 25.6 per cent on the year. Apartment prices rose 1.9 per cent in the month to be up 23.1 per cent on the year.

• Total returns on national dwellings rose by 25.8 per cent in the year to November, outperforming the S&P/ASX All Ordinaries Accumulation Index, which advanced 16.7 per cent.

Purchasing Managers’ indexes (PMIs) – November

• The AiGroup purchasing managers index (PMI) for manufacturing rose from a 12-month low of 50.4 in October to 54.8 in November. And the Australian IHS Markit Manufacturing PMI lifted from 58.2 in October to 59.2 in November – the third fastest rate on record. Readings over 50 denote an expansion in activity.

• IHS Markit economists reported, “Supply chain issues affected foreign demand, inventory building efforts and contributed to a significant rise in work outstanding for Australian manufacturers. Business sentiment likewise was affected by these supply issues.”

• And, “Once again, the accumulation of supply chain issues may be linked to reopening-related surge in demand and it will be worth monitoring whether these clear in the short- to medium-term, especially in the context of price pressures. On the flip side, overall growth momentum only improved, helping to provide some relief from supply concerns.”

Published by Ryan Felsman, Senior Economist, CommSec